Law firms v clients: Can the tension ever be resolved?

by Mackenzie McCarty19 May 2014
The tension between law firms and their in-house clients isn’t often talked about publicly. But Ernst & Young partner and global leader of legal services, Trevor Faure, says it’s one of the most common concerns he comes across when speaking to in-house lawyers.

However, Faure, who spoke on the subject at last week’s CLANZ conference in Dunedin, also believes there’s a simple solution: End the ‘zero-sum game’, whereby firms appear to benefit from the misfortunes of their clients.

“Imagine I’m selling fake watches,” says Faure. “Their actual value is $10 but I’m charging $100. When I sell one to you, I gain $90 and you lose $90 – the balanced sum equals zero.”

Faure says in-house lawyers often accuse law firms of billing unreasonably, billing for more hours than necessary and maintaining the attitude that “a client’s misfortune creates work for us”. On the other hand, he says, firms often accuse their clients of demanding unsustainably-low rates and expecting fewer billable hours than practically necessary.

“I was at a dinner in the UK not long ago,” Fauer says. “Two chairmen of large magic circle firms were at my table and…were badmouthing a client they had in common, which was a very well-known company. Not long after, I was asked to do a speech for a company’s in-house team and I told them this story. At the end, I said, ‘…and that client was you!’.”

The client’s response to finding out that their external counsel “hated” them?

“They said, ‘Good! That means we’re doing our job!’,” says Fauer. “This is a zero-sum game.”

The solution, he believes, is for clients to offer law firms incentives to make a profit. A win/win full service fee structure is a viable solution, he says, with a number of practices overseas already utilising variations of the below example.

Faure’s proposed ideal full service fee structure:
  • Fixed fee of X,000 hours = $ break-even rate
  • If hours are below X, the firm keeps 50% of savings
  • Each hour above X is below break-even rate
  • Up/Downshifts for pre-agreed litigation success/failure
What are your thoughts? Is this a practical and viable solution for New Zealand law firms and their clients? Give us your opinions in the comment box below.
 
 

COMMENTS

  • by Ken 19/05/2014 11:48:29 a.m.

    nothing worse than someone listening in to a group of people letting off steam and then sneaking off to tell the other person about it.

  • by Richard 9/06/2014 9:09:26 a.m.

    This seems like another nail in the coffin of the billable hour. In-house lawyers are now sophisticated clients and have other tools they need to consider using in their managing the cost of legal services. Panels appointed strategically to provide a better choice of cost and expertise rather than to compete with each other. Fixed fees with clearly defined scopes and with an ability to vary as required in a transparent environment. A commitment to work together even when the advice is not what was wanted. A trusting and respectful relationship. These are the challenges for both the in-house lawyer and the law firm relationship person.